Media business - the elusive search for scale and customization

Any business search for scale and customization for growth. Scale provides cost advantage; it is less costly to serve more customers because of division of fixed cost among bigger customer base. Assembly line production was one of the main reasons of rapid progress of automobile industry. Customization is what allows business to capture a larger premium from customers and hence higher revenue. If people are able to get products/services based on their individual tastes, they will be willing to pay a premium. And since profit = revenue – cost and through scale and customization, business can increase revenue and reduce cost, bottom-line improves.

It is quite difficult to achieve scale and customization in the same breath. Scale needs uniformity of production while customization requires the opposite. There is a compromise to be made between those factors and in essence, businesses thrive on some linear scale between scale and customization. I remember that in OM, there was a case where the company “national Bicycle” has been successful in achieving these twin objectives.

Media business has also followed the same trend. The elusive combination of scale and customization has been the objective and with the advent of internet, it seems that media has found something spectacular where other business has been slightly successful –scale and customization.

For this we first need to define media. Media is an abstract concept here which subsumes all form of activities which are outside productive working hour. Books also are a type of entertainment on an abstract level. Reading books don't produce food to eat or clothes to wear or machines to manufacture clothes. It may aid in making us more productive but other form of leisure also do the same. Same goes for movies, music,plays, news etc. Lets retrace the steps of evolution of media business and we will find the trend towards this search.

Nautanki in villages where musicians, dancers would come and perform for a paltry sum of money was the most ancient form of media. The performers would be quite poor as it was difficult to monetize the activity. The reasons were many. First people were not productive enough and so leisure was very expensive. Second they didn't produce enough surpluses to afford paying for leisure. Third, these artists also had limitations of scale. In a year, they can produce a maximum of say 365 shows if they do it once a day. That will also be difficult to achieve since they have to move to different places. Villagers will not be willing to pay to see the same act. Variety in media will be inadequate as the artists will have limited songs to play and since this wasn't a very profitable profession, there will not be many different performing artists. But there will be variety of art developing in different pockets of world. Since there will be limitations of how much distance that artists can travel, entertainment tastes will be local. So we had quite a form of media which was local, limited in variety on a local scale and artists were poor. Whether poor artist led to poor or good quality is a matter of different discussion.

Going ahead, artists found a different source of sustenance. The productivity of people was low but there were few who had the control of means of production through use of sword, winning the ovarian lottery etc. These people were hence able to collect monopoly rent arising out of their control of means of production and hence the surpluses generated by the rest of the population were captured by them. These were the kings, nobles and ministers of ancient kingdom. So artists thought that making money would be easier if they cater to the taste of this minority of population like ministers, kings etc. This will provide them scale in monetization. The kings will capture the surplus of population and the artists will get some portion of it. This started the phase of what can be called the regal media. As you don't need to cater to popular taste, one can make "art" movies rather than mainstream "bollywood" movies and make good enough money for their living. This media will have lots of variety and "local" form will go away. There will be some powerful kings who needs to be pleased and artists will form music to their taste. So we saw all these famous gharanas "Mughal", "Carnatic" etc. They took the place of folk music.

Printing Press was the next set of innovation which revolutionized the form of media called books. The ability to make copies out of a form of art was a very powerful concept which can bring the required scale in media. The fixed cost increased while variable cost reduced. The scalability by its nature has few winners and many losers. So now there will be few books which will be widely read and many books which will never have audience because they will not be able to find enough profit to compensate for the fixed cost. But customization was not easy. Niche writers will not earn much as it is difficult to monetize readers in different geography without expending high cost of distribution and advertisement.

Movies, camera and theaters did to visual media what printing press for books. One can make multiple copies at very small cost and distribute it. Popular movies started taking the center-stage since the commercialization was much easier. But this visual media was lacking in convenience of watching it any time. One has to go at a designated place to watch movies. So variety in content was limited.

Television and radio solved those issues. One channel can broadcast content while customers can receive that content through installing television in their home. But the question was how to monetize such a business model. Cinema theater can charge subscription fee to enter the theater. Television was an open media. Putting restriction on what can be captured and viewed by a single customer was impossible from a technical perspective. This was quite spectacular also in the sense that there was now a divison between content creator and device producer. Device companies which produce TV and content creator needed to come up with a complex arrangement if they had tried to monetize this with the existing model. The advertisement model used in newspaper industry was applied here and we saw a revolutionary growth in television. The “idiot” box was able to play varieties of programs not possible with theatre due to convenience of watching. 24 hr media help to capture a wider audience. Advertising with its scale advantage was able to produce big winners. Now there were no regional stars but only national stars. Whoever wins the publicity race has to win the race on national level. Earlier it may be the cases that say local cricket players were able to monetize affection of their city and everyone earn decent money. Now with advent of television, we had national cricket player who capture surplus of all the regional players. The regional players become poorer and national players become much richer.

That’s one example of how scale can make few winners and large number of losers. This model though had enough flexibility to develop customization on some level. Regional television channels catering to peoples taste developed and grew. They profited from need for local companies to advertise in local areas and hence took away the scale advantage of national television channels.

Internet is a totally different paradigm which subsumes all the advantages of various media channels. The main advantages are

a) Visual, voice and text and much more: Internet had the ability to support one and all types of display.

b) Interactive: This was quite extraordinary where users can provide feedback, create and collaborate to form a different type of entertainment.

c) Scale: One can reach to people in any part of the world because the IP protocol is standard across different places. So one can use that protocol to access content from any place. The audience was larger and hence the winner was much bigger. Wikipedia,youtube became a worldwide phenomena rather than its equivalent CBS,NBC in the world of television.

d) Customization: It was easy to customize to personal tastes due to two reasons. One since the reach was worldwide, it was much easier to aggregate demand from different parts of world and monetize. And other reason was that fixed cost of production became much lower. Anyone can produce content and publish it on this medium.

e) Monetization: This has been not easy to achieve and the toughest cookie to crack as can be expected. Getting money out of customers pocket has never been easy. Advertisement model has worked on some level and this will grow as soon as more people are present on this media. Subscription model can be the key here. Ecommerce is on the upswing and as soon as people start trusting this, this will have accelerated growth. Internet due to its vastness has contributed to its difficulty to monetize. People always think that there are free things available in some corner, so why pay for it. This in my view is because of the newness of internet paradigm and as soon it will mature, people will be willing to pay for information. Paying is critical to keep the internet growing. Quality of content will improve only if there is able to monetize. Wikipedia may be the best possible encyclopedia on internet but there is much to desire in terms of quality. If youtube has to replace television, monetization is the key.

So internet is one of those innovation which has broken this compromise between scale and customization. If this has to be preserved, business models have to find a way to monetize the content. The contents are much richer, realtime and whatnot . So media business shall have the ability to take a higher time out of human productive time and convert into leisure. Facebook at work is one of the example for that. And the productivity growth will definitely aid the growth in media business as leisure will become affordable.

Is this the real thing?

http://mashable.com/2010/07/23/india-cheapest-laptop/

35 $ for a computer. Is this real? We have heard rumors earlier . Simputer was supposed to revolutionize computing in India but that didn't happen.

But think of a chance that this is possible. 1500 rs for a computer. I never thought that computing power of processors are a big bottleneck in making these cheap PCs. There is limit to which computing power is required for a machine which is useful for average user. This computer will be like TV possibly better TV. This TV will be interactive, more choices of channel and a paradigm where users can connect in realtime to jointly produce content. The possibilities for education, personal development are indefinite.

Inception and the bigger question of what makes for a good movie

Frankly I dont think that Inception is one of the best movie made ever. Neither it is a very good movie. It is an above average movie. I think it was more of action movie rather than anything new.. some of the scenes was good camera work but on the whole it was a Van damme movie with slightly better actors and more convincing script.

But the world disagree. This is based on numerous facebook posts and astonishing imdb ratings.
So does my opinion matter. I have always this question of what makes up for a good movie.
There have been instances in the past where my opinion of a movie/serial was sharply divergent of the minority. And there have been cases when I have presented my divergent views, where friends have accused me of being a show off/pseudo intellectualism. "You have become corrupt enough to enjoy these simple pleasures of life".

See I can understand where my friends are coming from. Being a contrarian helps to identify yourself in a crowd. Many times I myself have been agitated by people who present their opposing views to commonsense just for argument sake.

Showoff in your hobbies is a normal way to get peoples' attention. If someone says that they like English rock music and have no qualms for any Hindi music, that person may seriously like English music or may be just trying to showoff.

Pseudo intellectualism is another charge for which I dont have a defense. Finally whether "Dead Poets society" is better than "Terminator" as a movie is a matter of personal opinion. Whether you are a pseudo or really like it, you need to go into ones dream and check it on a sub-conscious level.

But I had a different point to make when I started to write this blog. My question is does my opinion matter about what makes for a great movie. If you follow utilitarian principle or market based theory, whatever movie makes money shall be made more. So if "Inception" and "Transformer" is liked by majority of people, that shall make for what society shall produce more in the form of "entertainment".

This outcome of encouraging crass movies may be harming my personal liberty of "not able to watch more movies which I like". But this freedom is not the fundamental tenet of individual freedom which needs to be protected from being abused.

Then I came across John Mill's version of "greatest-happiness principle". Here is a snapshot of principle lifted from wiki .

"Mill's famous formulation of utilitarianism is known as the "greatest-happiness principle". It holds that one must always act so as to produce the greatest happiness for the greatest number of people, within reason. Mill's major contribution to utilitarianism is his argument for the qualitative separation of pleasures. Bentham treats all forms of happiness as equal, whereas Mill argues that intellectual and moral pleasures are superior to more physical forms of pleasure. Mill distinguishes between happiness and contentment, claiming that the former is of higher value than the latter, a belief wittily encapsulated in the statement that "[i]t is better to be a human being dissatisfied than a pig satisfied; better to be Socrates dissatisfied than a fool satisfied. And if the fool, or the pig, are of a different opinion, it is because they only know their own side of the question."

Mill defines the difference between higher and lower forms of happiness with the principle that those who have experienced both tend to prefer one over the other. This is, perhaps, in direct contrast with Bentham's statement that "Pushpin is as good as Poetry", that, if a simple child's game like hopscotch causes more pleasure to more people than a night at the opera house, it is more imperative upon a society to devote more resources to propagating hopscotch than running opera houses. Mill's argument is that the "simple pleasures" tend to be preferred by people who have no experience with high art, and are therefore not in a proper position to judge. Mill supported legislation that would have granted extra voting power to university graduates on the grounds that they were in a better position to judge what would be best for society. It should be noted that, in this example, Mill did not intend to devalue uneducated people and would certainly have advocated sending the poor but talented to universities: he believed that education, and not the intrinsic nature of the educated, qualified them to have more influence in government."

I can put forward this version of political philosophy to protect my right to get better movies. Good movies are higher form of happiness and hence shall be encouraged over bad popular movies. Am I claiming to be intellectual enough to know what makes for a good movie and hence higher pleasure? Am I arrogant enough to know more than choices of majority of the world? Well that is the charge against which I don't have good defense. I need to think more about this.